DEFINITION of Blocked Period
Blocked period refers to a length of time in which an investor’s securities are prevented from being accessed. A blocked period may be put in place if an investor has used a security as collateral, as it prevents the investor from using the same security as collateral or from selling the security. It may also refer to a period of time in which an investor cannot access account funds.
BREAKING DOWN Blocked Period
Blocked periods denote periods of time where an investor cannot access their assets. Brokerages and financial institutions may place a hold on the securities in an investor’s account for several reasons. Reasons include the investor being labeled a day trader using a margin account, or the investor using a security as collateral in a trade.
Investors who trade frequently may be considered to be day traders by the Securities and Exchange Commission (SEC). This label may bring with it requirements for how much money must be available in the investor’s account at a particular point in time. A pattern day trader label is given if an investor buys or sells stocks while also shorting the stock using a margin account more than a defined number of times during a week.
Brokerages may be required to block an account for a period if the account holder buys or shares securities without having sufficient capital to complete the trade, referred to as freeriding. The specific regulation governing this is called Regulation T, and specifically relates to cash accounts.
An Example of a Blocked Period
If an investor with a cash account tries to purchase shares with funds that have not yet been settled from a previous trade, the brokerage firm's compliance and trade monitoring department may issue a blocked period. The blocked period lasts ninety days. During this time the investor may make purchases, but only with completely settled funds. Investors can avoid this type of blocked period by trading on margin, though margin accounts are subject to other rules regarding minimum balances.